Financial News

Australian manufacturing expanded at the fastest pace in more than two years, adding to evidence of economic rebound that may prompt the central bank to boost borrowing costs tomorrow for the fourth time in five meetings.

The performance of manufacturing index rose to 53.8 points in February from 51.0 in January, according to an Australian Industry Group and PricewaterhouseCoopers survey released in Canberra today.

A reading above 50 signals manufacturing is expanding and gives central bank Governor Glenn Stevens more scope to increase the benchmark lending rate tomorrow by a quarter percentage point to 4 percent, as forecast by 14 of 19 analysts surveyed by Bloomberg News. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, a separate analysts’ survey ahead of a report on March 3 shows.

“While there is a lot of ground lost over the past two years still to be recovered, overall, conditions do appear to be improving,” AIG Group Chief Executive Officer Heather Ridout said payday loans. “The combination of rising new orders and production augers well for the industry in coming months.”

The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.

A gauge of production rose 4.2 points to 55.7, the sixth increase in seven months, today’s report shows. Growth was strongest among manufacturers of textiles and paper, as well as publishing companies. An index of orders was little changed at 56 in February.

Today’s survey also shows that companies related to consumer spending have weakened.

“The impact of the strong Australian dollar and higher interest rates are posing formidable headwinds to growth while high interest rates are also dampening demand,” Ridout said.

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Eastman Kodak Co. is seeking to block imports of certain camera-enabled BlackBerrys by Research in Motion.

The Rochester, N.Y.-based camera company filed a complaint this week with the U.S. International Trade Commission, alleging that the BlackBerrys in question infringe on a Kodak patent relating to a method for previewing images.

Respondents in the action include both Research in Motion’s primary business in Canada and its U.S. operation, which is based in Las Colinas. A Research in Motion spokeswoman declined to comment on the matter.

Also named in Kodak’s International Trade Commission complaint is Apple Inc., which Kodak alleges is infringing on the same patent with its iPhones. Apple officials weren’t immediately available for comment Friday.

Kodak also filed two patent-infringement lawsuits against Apple in federal district court in New York guaranteed online personal loans.

The company did not sue Research in Motion in federal court, however; instead, it's only pursuing the International Trade Commission action against it, according to a Kodak press release.

David Lanzillo, a Kokak spokesman, told the Dallas Business Journal that the company opted not to pursue a court action against Research in Motion. “Our approach is appropriate to the specific infringement that we allege on the part of Apple and Research in Motion,” he said.

Earlier this week, the International Trade Commission opened an inquiry to a separate patent-infringement complaint against Research in Motion by a Nebraska company called Prism Technologies LLC.

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Europe’s unemployment rate unexpectedly increased to 10 percent, the highest in more than 11 years, as companies cut costs in the wake of the worst recession in more than six decades.

November’s euro area jobless rate rose from a revised 9.9 percent in October, the European Union statistics office in Luxembourg said today. That’s the highest since August 1998. Economists forecast a November rate of 9.9 percent after the 9.8 percent initially reported for October, a Bloomberg survey showed. The euro-area economy expanded 0.4 percent in the third quarter from the previous three months, according to a separate report.

European companies are cutting jobs and paring wages to shore up earnings battered by the global slump. While economic confidence has risen to a level last seen before the 2008 demise of Lehman Brothers Holdings Inc., a surge in energy costs and a stronger euro threaten to damp the recovery.

“We’ll probably see further gains in unemployment over the coming months, with the jobless rate peaking at 10.7 percent in the second half,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. “That’s obviously bad news to consumers, which will be hurt by job cuts, lower wage growth and rising energy costs.”

The euro pared its gains against the dollar after the data and traded at $1.4317 at 10:31 a.m. in London, up less than 0.1 percent on the day. The yield on the German 10-year benchmark bond rose 0.2 basis point to 3.38 percent.

Consumer Spending

The euro-area economy returned to growth in the third quarter after governments spent billions of euros on stimulus programs to bolster spending. Still, corporate investment fell 0.8 percent in the quarter and consumer spending dropped 0.1 percent, today’s data showed. The European Central Bank last month kept borrowing costs at a record low and said it will exit some unconventional measures as the recovery progresses.

In Germany, Europe’s largest economy, unemployment unexpectedly declined in December, keeping the jobless rate at 8.1 percent, the Federal Labor Agency said on Dec. 5. German Chancellor Angela Merkel’s Cabinet extended the so-called short- term work program for a year from this month, allowing companies to continue tapping federal aid to help pay wages direct payday loans. As many as 140,000 people were on short-term work last month, the Federal Labor Agency said on Jan. 5.

Industrial Orders

With a 94 percent surge in oil prices over the past year threatening to crimp earnings and the euro’s 5.2 percent ascent against the dollar over the same period making exports less competitive, companies may remain reluctant to add workers. European industrial orders dropped more than economists forecast in October from the previous month.

Siemens AG, Europe’s largest engineering company, last month posted its first quarterly loss in a year and forecast a drop in 2010 earnings. The Munich-based company cut its global workforce by 3.6 percent in 2009 to weather a slump in orders.

Paris-based Accor SA, Europe’s largest hotel company, eliminated 1,000 jobs in France last year. ThyssenKrupp AG, Germany’s largest steelmaker, said in November that it plans to cut about 20,000 jobs.

With the euro-area jobless rate forecast by the EU to reach 10.7 percent this year, consumers may keep a rein on spending. European retail sales posted the biggest drop in 13 months in November, the statistics office said yesterday.

‘Significant Doubt’

“Significant doubt and uncertainties remain about the future strength of consumer spending,” said Howard Archer, chief European economist at IHS Global Insight in London. “Businesses may well remain cautious in their employment and investment plans for some time to come.”

At 19.4 percent, Spain had the highest unemployment rate in November among the 16 countries using the euro, today’s report showed. Austria and the Netherlands had the lowest jobless rates with 5.5 percent and 3.9 percent, respectively. The number of unemployed people rose by 102,000 to 15.7 million from October, the statistics office said.

Euro-region gross domestic product declined 4 percent from a year earlier in the third quarter, instead of a previously reported drop of 4.1 percent, today’s data showed.

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The Sobrato Foundation has provided a $300,000 bridge loan to InnVision-The Way Home to help tide it over until about $11 million in stimulus funding is available to help with emergency needs in Santa Clara County.

Christine Burroughs, CEO of InnVision, said the agency can draw against the money over a 13-month period. "Needs are very high right now," Burroughs said, "so if we have to distribute more than we've got this will be a huge help, especially since it's an interest-free loan."

InnVision said the federal government has a reimbursement policy for the distribution of much of its stimulus funding: Do the work first, then submit receipts for reimbursement.

"For the CalWORKs program, InnVision was given an estimate of up to 1,400 new clients that would receive over $11 million in emergency assistance over the next year. That’s almost $1 million dollars a month for which InnVision would be liable while waiting for reimbursement, much more than their financial reserves could handle," the agency said installment payday loans.

John Sobrato, chairman of the foundation, said the objective of the emergency fund "aligns perfectly with the Sobrato Foundation’s charitable mission of promoting the economic independence and social well-being of individuals and families across Silicon Valley, especially those earning 50 percent of area median Income or less and are homeless, or who will become homeless if they don’t receive some assistance. We believe that leveraging federal stimulus dollars is a smart role that philanthropists can play in helping address our society’s greatest needs right now due to the current economic depression.”

InnVision serves more than 25,000 people in Silicon Valley annually at 20 locations.

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Wells Fargo, citing the need to make cuts in its Menomonee Falls real estate resource center, will permanently lay off 26 employees beginning in February 2010.

The San Francisco-based financial services firm (NYSE: WFC) said in a notice released late Friday that it will lay off 19 loan servicing specialists, four loan documentation specialists and three administrators or supervisors. The employees work in the Wells Fargo office complex at 200 Woodland Prime.

"We regularly reveiw and adjust our staffing levels to match the needs of our business," Wells Fargo said in its layoff notice to the Wisconsin Department of Workforce Development.

The company said it expects most, if not all, of the laid off employees to accept paid leave benefits based on years of service and compensation levels. The employees will continue to receive health care benefits for an unspecified period, Wells Fargo said.

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A higher sticker price and fewer guaranteed deliveries may be the only way to rescue Europe’s new military transport plane after years of costly delays.

The Airbus A400M is being prepared for a December maiden flight in southern Spain even as its fate depends on the outcome of talks to save the 20-billion-euro project from collapse.

The planemaking subsidiary of aerospace group EADS is pressing for concessions in Europe’s biggest ever defense contract, saying it faces unaffordable losses in delivering the 180 troop and equipment carriers to seven European NATO nations.

Germany leads pressure for Airbus to stick to its terms.

Thousands of jobs are at stake and observers say the outcome could affect the industrial shape of Europe as well as the region’s stammering progress toward a common defense identity.

Investors in EADS and suppliers are bracing for billions of euros in charges and penalties if the rescue bid fails and Boeing and Lockheed Martin are ready to fill the gap with increased sales of their own troop and cargo carriers.

Now, with an end-2009 deadline weeks away, a formula for hiking prices without any immediate burden on taxpayers appears the most widely acceptable answer to a year-long deadlock.

If adopted, such a deal could stretch the targeted total of 180 aircraft over a longer period, but result in fewer planes being handed over during the previously agreed delivery period.

It is a device negotiators typically use to engineer a unit price increase when new cash is unavailable, according to current and former arms procurement officials, and many see it as the only pragmatic starting point during the economic crisis no checking account payday advance.

One scenario, which implies an approximately 25 percent unit price increase, would call for about 40 planes being pushed back into budget limbo pending a recovery.

New cash to build them would not be needed until the decade after next, well beyond the day-to-day political horizon.

“Presentation is a problem but the hard facts are that the only way to save the A400M program is through a price increase per plane,” said Teal Group aerospace analyst Richard Aboulafia.

For investors, such a deal could lift the threat of severe penalties that EADS would otherwise face for the 3-4 year delay.

However it may also leave EADS dependent on exports to erase previous losses, and the manufacturer suffered a setback when South Africa, one of only two overseas buyers so far, canceled.

And it leaves little room for maneuver if there are further cost overruns, since they have to be amortized over a decreasing number of planes — a phenomenon nicknamed the ‘death spiral,’ which Aboulafia says can chip defense projects down to the bone. 

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White House economic adviser Lawrence Summers will lead a high-level meeting on Monday to discuss the state of the economy, job creation and ways to achieve sustainable growth.

A White House announcement said the meeting would take place at 2 p.m. EST and would include Cabinet officials from Treasury Secretary Timothy Geithner to Health and Human Services Secretary Kathleen Sebelius, Agriculture Secretary Tom Vilsack and Energy Secretary Steven Chu.

National Security Adviser James Jones, White House climate czar Carol Browner, U.S. Trade Representative Ron Kirk and senior White House adviser Valerie Jarrett are also among those scheduled to attend.

A spokesman for Summers, who is director of the White House National Economic Council, described the meeting as one of the regular gatherings of the council

“This is a principals’ meeting for the department and agency heads who participate in the NEC process to gather and discuss the state of the economy,” said NEC spokesman Matthew Vogel.

The Summers meeting will be separate from a gathering that President Barack Obama will hold with his panel of outside economic experts headed by former Federal Reserve Chairman Paul Volcker.

The Obama administration has been weighing options to address ways to try to restart job growth with the unemployment rate now at 9.8 percent.

Signaling the end to the deepest recession since the 1930s Great Depression, the government last week said U.S. gross domestic product grew at a robust 3.5 percent pace in the third quarter.

Obama trumpeted the GDP numbers in his weekly radio address on Saturday but said, “we have a long way to go before we return to prosperity.”

The White House has credited the $787 billion economic stimulus package passed earlier this year with helping to bring about the rebound.

Republicans have characterized the stimulus package as wasteful and say the continued job losses are an indication it has not worked.

New unemployment numbers due out on Friday are expected to show U.S. employers cut another 175,000 jobs in October, according to economists polled by Reuters. The unemployment rate is forecast to rise to 9.9 percent for October.

(Reporting by Caren Bohan; editing by Chris Wilson)

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Ingersoll-Rand PLC, a maker of heating and cooling systems for homes, businesses and transport, reported a 5 percent drop in quarterly profit on Friday and said it continued to see challenges in its markets.

Net earnings were $216.6 million, or 65 cents per share, compared with $227.7 million, or 70 cents per share a year earlier.

Excluding restructuring costs, earnings from continuing operations were 70 cents per share. Revenue fell 19 percent to $3.48 billion, below Wall Street forecasts for sales of $3.56 billion.

Ingersoll, which also makes security technology, air compressors and utility vehicles, said it was confident of growing earnings next year even if markets remain weak. It forecast this year’s earnings between $1.60 and $1.70 per share.

(Reporting by Nick Zieminski; Editing by Derek Caney)

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Australia’s economic recovery will be tougher than many expect as government stimulus spending slows, interest rates climb and family savings decline, Access Economics said.

While the nation’s economy “sailed through the worst of the global crisis on a sea of stimulus,” the recovery will be “softer and slower” than some expect, Chris Richardson, head of the Canberra-based research company, said in a report today.

Central bank Governor Glenn Stevens, who this month became the first Group of 20 policy maker to raise borrowing costs, signaled on Oct. 15 he will increase rates again as soon as next month. Rising consumer confidence, a drop in the jobless rate and China’s demand for Australia’s raw materials including iron ore will boost the economy, Access said.

“That doesn’t mean Australia will get off scott free,” Richardson said. “The stimulus is winding back, the cash splash has pretty much passed and the Reserve Bank will soon start to raise interest rates” again.

Australia’s gross domestic product rose 1 percent in the first half of this year, boosted by a surge in consumer spending after the government distributed more than A$20 billion ($18 billion) in cash to households. The government is also spending A$22 billion upgrading roads, ports, railways and schools.

Governor Stevens raised the benchmark lending rate on Oct. 6 by a quarter percentage point to 3.25 percent, after slashing borrowing costs by a record 4.25 percentage points between September last year and April.

‘Too Timid’

The central bank can’t be “too timid” in raising borrowing costs now that the threat of an economic crisis in the nation has passed, Stevens said last week.

“Shoppers are spending 7 percent more than when the crisis hit. Between them, the Reserve Bank and the government gave the average family the equivalent of 10 percent extra income to spend,” Richardson said.

Half of that increase has already disappeared and much of the rest will go over the next 18 to 24 months, Access predicts.

“The implications of that for the recovery are tougher than most realize,” Richardson said.

GDP will climb 0.9 percent this year, 2.7 percent in 2010 and 3.4 percent in 2011, Access forecast.

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Private equity giant Blackstone Group’s chief executive said the worst of the industry’s problems had passed, with improved capital and equity markets finally providing an opportunity to do deals and sell existing investments through IPOs.

Stephen Schwarzman also said on Wednesday he was seeing “more than green shoots” of economic recovery, though the scale of growth through next year was still unclear.

Private equity firms have been hampered since the credit crisis shut off their ability to tap financing for leveraged buyouts; the financial turmoil has also damaged the health of their portfolio companies. Economic recovery and a rebound in financing markets are key for the industry.

“We do not expect the U.S. economy to slip back into recession but we do believe that weak consumer spending and continued constraints on bank lending will dampen the U.S. economic recovery in 2010 and 2011,” Schwarzman said at the Super Return Middle East conference in Dubai.

While it would take several years before “freely flowing but responsible credit” was re-established, the private equity industry was in a “radically different place” than a year ago, given signs of life in the bank financing market, he said.

“We can certainly do transactions in the $3-$4 billion range at this stage in the cycle,” he said on the sidelines of the conference. “And with low leverage involved, deals of that size can use in excess of $1 billion equity.”

Blackstone, one of the world’s biggest private equity firms, struck a deal earlier this month to buy Anheuser-Busch InBev’s U.S. theme parks for up to $2.7 billion, adding to its amusement assets such as the Madame Tussauds wax museums, Legoland and the London Eye Ferris wheel.

Based on recent deals, Blackstone’s implied investment rate is $4 billion to $5 billion a year, Schwarzman said.

He said right now is an excellent time to purchase stable businesses in developed markets, but added it was still too early for cyclical companies. He sees opportunities to buy growth companies in Asia.

Schwarzman said while he expects more deals ahead, Blackstone has been outbid by companies rather than private equity firms on several occasions recently.

Blackstone shares rose 4 percent in morning trade on the New York Stock Exchange, to $16.53 — about half the firm’s June 2007 IPO price of $31 a share.

The shares also rose sharply on Monday, when a letter Schwarzman sent to investors previewing his speech leaked out.

EXIT STRATEGY

He said the route to exiting acquisitions had opened, citing five sales — of which four are complete and one imminent. If all five are completed, Blackstone’s funds will receive about $2.8 billion, he said.

In the letter to investors, obtained by Reuters, Schwarzman said these sales occurred at prices between 140 percent and 240 percent of Blackstone’s year-end 2008 valuations. 

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